Documente Academic
Documente Profesional
Documente Cultură
with
Technical Insights
CONTENTS
1 Introduction 4
2 Components of TTO 4
3 TTO Calculations 7
4 Interpretation 8
6 Anatomy of a Trend 11
16 Advantages of TTO 24
18 Conclusion 25
Section 1
1. Introduction
The Triple Trend Oscillator (TTO) is a trend following oscillator devised to identify
the exact technical strength of a stock or indices over multiple timeframes and can
also be used as a trend and momentum indicator. The sole purpose of this indicator
is to keep positions on the right side of trend and at the same time indicate trend
quality.
Like many other technical indicators, TTO oscillates around a zero line but with a
difference. It incorporates trend oscillators which mimic the trend momentum
across three timeframes, plotting them simultaneously, thus giving an overall view
of the trend position. Thus it provides a better indication of trend strength which is
not possible when trends are viewed in isolation.
Just like visual interpretation is better with two eyes than one, the Triple
Trend Oscillator provides a three dimensional view for better
understanding of trends.
2. Components of TTO
The main components of TTO are the three trend oscillators, which plot the three
trends : Major, Intermediate and Minor trend. As indicated by TTO, a stock would
be extreme bullish when all the three trend lines are above zero and extreme
bearish when they are below zero. Between the extreme bullish/bearish phases,
TTO exhibits varying degree of trend quality depending on the position of the three
trend oscillators. Each sub-trend oscillates around its main trend, denoting the
period of uptrend/downtrend in the main trend. Thus if the sub-trend rises above
the main trend and remain there for an extended period, it has the effect of pulling
up the main trend upward and vice-versa.
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TRIPLE TREND OSCILLATOR – Technical Insights
Within the major and intermediate trends, TTO shows trend swings which are
indicated by the trigger line, which acts as a leading indicator. Trading position can
be taken in the direction of the larger trend based on the zero crossover of the
trigger line. When trigger line crosses zero from bottom, a buy signal is generated
and vice versa. An increasing value of the trigger line would depict increasing
momentum and topping or reversal when it starts approaching zero line. One
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TRIPLE TREND OSCILLATOR – Technical Insights
Unlike other oscillators, TTO does not have an overbought or oversold zone as
these zones tend to over-extend and may remain in overbought or oversold
territory for a long period till the trend is reversed. TTO relies on the trend reversal
which is indicated by crossover of the shorter term trend lines. What it means is if
the shorter term trend line crosses the longer term trend, a reversal is indicated. In
the absence of such a crossover, the trend is assumed to continue. This logic
applies to all the three time frames included in the TTO. If a lower degree trend line
falls below or moves above a higher degree trend line, either the trend is weakening
and reversal is impending.
What TTO effectively does is, it plots the trend transition, as it flows from a lower
timeframe to a higher timeframe i.e. 5 min-15min-hourly-daily-weekly-monthly. At
any time three time frames can be plotted simultaneously, depending on its use
for- day trading, positional trade, short term trade or investment. A look at the
table will explain this :
TRENDS DISPLAYED
15 min 5 15 Hourly
CHARTS
TTO uses exponential, double exponential and triple exponential moving averages
of the momentum in each trend cycle to eliminate the leg effect. This makes the
three trend cycles more responsive to price change which when viewed together
gives a much clearer trend position and early indication of trend reversal.
3. TTO Calculations
TTO uses EMA, DEMA and TEMA of the momentum and their differential to calculate
the change in trend across the multiple timeframes.
The position of the trend oscillators (TO) across different timeframes indicate the
relative strength or weakness in a trend. As momentum originates in the lowest
timeframes and moves into the higher timeframe (trend transition) the trend flow
and direction can be easily viewed when all the TO are displayed simultaneously.
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TRIPLE TREND OSCILLATOR – Technical Insights
4. Interpretation
On the CNX Nifty hourly chart the following three trends are plotted :
Along with the above the indicator also shows the black dotted lines (trigger line)
which mimics the minor trend and its crossover is used as entry and exit signal.
Notice how the daily trend carries with it the various sub trends which can be used
to make precise entries/exits. The hourly trends tries to keep itself above the daily
trend, showing continuous trend strength. The 15 minute trend whipsaws around
the hourly trend giving an early indication of trend change. The trigger line
(smoothed) shows the relative strength/ weakness of the 15 minute trend.
The indicator also shows divergences across the various trend cycles which
indicates that a change in the trend direction is just around the corner. So apart
from the daily and hourly trend, one can see the developments happening in the 15
minute and even 5 minute time frame which is crucial for a trader and result in
better risk management.
On the daily chart of CNX Nifty below, which shows the weekly, daily and hourly
trends, one can spot the trend change taking place on the pink and blue twin
parallel line, much before the daily signal comes on, virtually giving the best entry
signal one can have for the trade. This is possible because the lower timeframe
trend is being monitored and used for entry/exit on zero crossover.
The chart gives information about not only weekly and daily trends, but also hourly
trend, which can be used to make an informed trading decision, without waiting for
the daily signals, which could be significantly delayed due to the leg effect. This can
increase the profitability of the trading position considerably.
A Bullish Alignment, occurs when all the three trend oscillator are in positive zone
which results in quick up move in the price of the security. The trigger (black
dotted) line can be used to initiate the long/ buy trade.
Conversely, in a Bearish Alignment, the three trend oscillators are placed below
zero line to initiate a short/sell trade on trigger crossover.
6. Anatomy of a Trend
Every trend carries within itself several sub-trends of various lower degree, though
hidden, but play an important role in shaping the trend quality. The need is to
identify these sub-trends and view them in conjunction with the main trend, so as
to get an overall technical position of the security.
The position of the trend oscillators, play an important role in determining the trend
strength. In case, all the trend oscillator remain above the major trend and
continue to oscillate above it, the security would exhibit highly bullish impulse and
rise rapidly. Reverse is true for a highly bearish security, when all the trend
oscillators fall below the major trend and continue to oscillate below it.
The following hourly chart of ICICI Bank shows a fairly long bullish daily trend,
along with the sub trends. A trader can, by avoiding the short term down tends,
perfectly time his entry and ride the uptrend with minimum risk.
Equally important is the stock selection which can give the best trending position.
Using TTO one can analyze the long term trend and take position in a shorter time
frame with a precision entry using a minor trend, all this information available on
the same indicator.
An advanced option trader has highly sophisticated tools to trade in options where
each of the factors affecting option pricing is analyzed. However, for a trader it
boils down to managing the intrinsic and time value of an option. Hence it is
important for an option trader to know the trend force and direction before trading
in options. A strong trending move can negate the effect of theta (time value
erosion), keeping the option trader in profit, even when close to expiry.
Trading naked options, if timed correctly, can become a relatively risk free, simple
and high profit strategy . An option trader using the Triple Trend Oscillator will be
in a position to judge the tend quality. The position of trend oscillators close to zero
indicates sideways moves which can kill an option trader. The best trend
structures would be when the trends are placed away from the zero line indicating
strong trending move in either direction. Again the position of the intermediate and
minor trend would indicate the trend strength and the trigger line could be used to
take position in the direction of the major trend.
Notice in the following chart, how the thin black line zero crossover can be used to
make precise entry in the direction of a larger trend. Even if you miss the first entry
or are not confident, one can always use the second crossover for a good directional
trade.
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TRIPLE TREND OSCILLATOR – Technical Insights
With TTO it maybe possible to anticipate the direction of the breakout move as can
be see in the weekly chart of USDJPY below. The placement of medium and short
term oscillator above the long term oscillator during December 2012 and October
2013 and a trigger crossover indicated an up word breakout. However, during July
2014 breakout all the three oscillators are placed above zero indicating positive
breakout on trigger crossover.
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TRIPLE TREND OSCILLATOR – Technical Insights
Once the confirmation of trend change is established, the lower timeframe can be
used to get a precise entry point into a well established trend. TTO can foresee the
approaching strength/ weakness and thus give an edge to the trader. Thus the
visual interpretation skill can help and make TTO more responsive the trend
change.
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TRIPLE TREND OSCILLATOR – Technical Insights
INFOSYS
The daily chart of Infosys Ltd. (INFY-NSE) suggested sell as indicated by the trigger
line crossover. The buy was indicated at 3580. Once the stock touched 3760, the
indicator was showing continuous loss of momentum.
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TRIPLE TREND OSCILLATOR – Technical Insights
Chart 11 : Infy
The following chart is a perfect example of trend behavior in each of the five
waves. It is important to notice the position of the various trends, i.e. major,
intermediate and minor trend as they emerge during the five Elliott waves.
The bullish alignment of the three trends is a clear indication of the third wave in
progress. The extreme reading in TTO correspond with the high made by wave
three. During this period, the sub trend continue to oscillate above the main trend,
and a fall below it indicating the beginning of the fourth wave. Again, during wave
five, the trend remain subdued, as the sub trend fails to rise above the main trend,
thereby indicating progression of wave five and a reversal thereafter.
In the following hourly chart, CNX Nifty seems to have completed the fifth wave
which would be followed by a three wave (A-B-C) retracement.
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TRIPLE TREND OSCILLATOR – Technical Insights
1. All the three trend i.e. major, intermediate and minor should be placed above the
zero line.
2. The three tends should be bullish i.e. rising.
3. The minor trend should be placed above the intermediate trend and the
intermediate trend should be placed above the major trend.
4. The trigger line should have crossed zero to generate a buy signal.
In the following hourly charts with TTO, the bullish alignment satisfying the above
conditions is clearly visible with the resultant quick price movement.
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TRIPLE TREND OSCILLATOR – Technical Insights
One of the most recent examples of bullish alignment patter at work can be seen
in the following weekly chart of CNX Nifty as on May 8, 2014 which identified the
major impulse that followed. The indices on that day was at 5648, having corrected
from the previous up move. However, TTO was showing considerable strength and
hinting at an explosive move in near future.
In the following week, on May 16, 2014, Nifty touched a high of 7557
coinciding with the results of the general election in India.
Towards the end of 2007, the medium term trend oscillator fell below the long term
oscillator and finally went below the zero line marking the beginning of a bear
phase. As the fall accelerated the long term oscillator was also dragged below zero.
Towards the beginning of 2009 the oscillators had started moving north while DJIA
continued to make new lows clearing indicating a weakening of downtrend
momentum. In the later half of 2009 the oscillators had crossed over above zero
marking the beginning of a new bull phase. The entire 2008 provided several
shorting opportunities when the trigger line crossed below zero.
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TRIPLE TREND OSCILLATOR – Technical Insights
TTO is a trend following system which is highly responsive to price change, keeps
you on the right side of the trend as well as helps identifying high quality trends.
The indicator parameters have been optimized, back tested using historical data
and in live market conditions. However, the indicator does not predict any levels or
sets any price targets. Since the indicator can provide trading solutions for a trader
with precise entries and exits, it can be used as a complete trading system.
18. Conclusion
There are several aspects of technical analysis study like patterns and channels
which can be integrated with TTO. The impact and analysis of such integration has
not been covered under this study. The oscillator can be used as stand alone
indicator or an additional tool by a trader to negotiate the market trends.
TTO is an oscillator which gives a bird eye view of the prevailing trend for a scrip
across three time frames. Though the indicator may look complex with its several
trend oscillator , but once properly understood can be used advantageously to stay
ahead of the market. Equipped with the TTO, a trader would be better placed to
deal with the short term noise and whipsaws.
TTO can be used in all time frames for equities, indices, commodities and forex for
short terms, positional and swing trades as well as for long term investing. It is the
culmination of extensive research carried out by me and could be a potential wealth
creator for the investors.
“Triple Trend Oscillator” or “TTO” is the term coined and used the author to describe the process of carrying
out an Integrated Trend Analysis using multiple timeframes. The above observations are part of the study
during the research carried out by the author, with the objective to develop an instrument which can aid
and enhance technical trading/investment.
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TRIPLE TREND OSCILLATOR – Technical Insights
Section 2
The following are the back test results for both long and short trades for varying
time periods which show reasonably high number of successful trades. The test was
performed using TTO crossover signals based on the closing prices of the current
bar. These test results were achieved during back test and under optimum
parameters, but may vary during normal trading. However, it would be safe to
assume that TTO shows high reliability as a trend following system.
The simulations incorporated trading 100 shares/index/units on both long and short
trades. The trade profits have been calculated at gross levels without taking into
account commission, brokerage and interest. The profit net profit % has been
calculated on an initial investment of 100,000 currency units.
Across all timeframes and asset classes, where the back test simulations were
performed, results showed the successful trades accounted for a minimum of 73%
to maximum of 97% of the total trades. The ratio of successful trade to
unsuccessful trades was much higher when tested in hourly and daily timeframes as
compared to 15 minutes timeframes. Based on the visual trade selection by the
trader, the quality of trade can be improved, thereby giving higher average profit
per trade.
Table 1.1
The maximum systems drawdown varied as per the volatility as shown in the table
below.
Table 1.2
An analysis of long and short gold trade during the 10 year period 2005-2014 :
Table 6 : Gold Backtest Result
35 $160,000
$140,000
30
$120,000
25
$100,000
Losers
20
$80,000 Winners
15
$60,000 Total Profit
10
$40,000
5 $20,000
0 $0
Trades
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Backtest Results : GOLD
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TRIPLE TREND OSCILLATOR – Technical Insights
An analysis of long and short trade in DJIA during the 10 year period 2005-2014 :
Table 7 : Dow Backtest Result
35
$1,000,000
30
$800,000
25
20 $600,000 Losers
Winners
15
$400,000 Total Profit*
10
$200,000
5
0 $0
Trades
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Backtest Results : DOW
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TRIPLE TREND OSCILLATOR – Technical Insights
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